Nov 01, 1999

Building Scheme, Developer to Approve Plan, is this a Conflict of Interest? #308


By Gerry Neely
B.A., LL.B.

A building scheme generally gives a developer the right to approve the plans for homes to be constructed upon the newly created lots. A perceived conflict may be seen where the developer may own lots in a subdivision and refuses to approve the plans for a home to be built upon a sold lot.

The perception of a conflict is increased when the developer refuses to approve the plans for the construction of a home in one phase because of the impact that might have on the next phase of a multi-phased subdivision. That argument was made for the builder of a home on a corner lot at the entrance to a new phase described by the developer as having a higher standard than the preceding phase.

The judge acknowledged that developers of subdivisions have an interest not just in selling lots but also in protecting the interest of all lot owners to ensure that the desirable characteristics of the neighbourhood are preserved to meet existing standards. The building scheme gave the developer the sole discretion to interpret, apply and approve or reject any plans submitted on behalf of a purchaser of a lot. Even though this appeared to give the developer an unfettered discretion to make these decisions, the courts have established limits on that discretion. A builder cannot make a decision based upon bad faith, or made with the intention of discriminating, or made on a totally inadequate factual basis.

The evidence established that the developer’s rejection of the plan was consistent with its approval of plans for corner lots, to avoid a blockage of the sight lines on a corner lot. The judge was satisfied that the developer acted properly and refused the builder’s request that it be removed as the approving authority under the building scheme.1

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A seller trying to defeat a buyer’s action for specific performance of a conditional contract for the purchase of the seller’s apartment block argued that there was no enforceable contract, but only an offer to buy which contained vague and unenforceable subject conditions. The offer contained eight conditions, including a satisfactory review and approval of financial statements, a satisfactory physical inspection, completion of a phase I environmental audit, all to be approved by the buyer.

The seller’s argument was that all of these conditions and their removal depended entirely upon the subjective state of mind of the buyer, who could refuse to approve them without attempting to justify that decision. This would have brought them within the whim or fancy type of condition.

The judge did not agree, following another decision in which a court decided that conditions concerning engineering, soils and traffic reports that were to be approved by the buyer could not be rejected arbitrarily but only on reasonable specified grounds. The conditions were not so complex that a court would be unable to assess the reasonableness of a buyer’s decision not to remove or waive a condition, which, if unchallenged, allowed the buyer to repudiate the contract.2

 1. Sullco Inc. v. Cara Glen Estates Ltd. Reasons for Judgment, March 11, 1999, S.C.B.C. Kelowna.
 2. Shearer v. Genesis North Investment Corp. Reasons for Judgment, September 26, 1997, S.C.B.C. New Westminster.

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